The paradox of delaying forced selling... Daishin Securities union: “Who will take responsibility for the losses?” [fn Market Watch]

[Financial News] The government has decided to temporarily waive securities firms’ obligation to maintain collateral ratios for margin loans in response to a sharp drop in the stock market, prompting concerns about credit risks in some parts of the financial investment industry. Critics say that even if delaying forced selling prevents an immediate wave of sell-offs, further declines in stock prices could increase losses for both securities firms and investors. In particular, who will bear potential losses arising from efforts to stabilize the market has emerged as a new point of contention.
According to the financial investment industry on the 9th, the Daishin Securities branch of the National Union of Office, Financial and Service Workers raised the possibility that the government’s temporary waiver of the requirement for securities firms to maintain collateral ratios for margin loans could increase their credit risk, and called for clear accountability in the event of losses.
The key issue is the transfer of risk resulting from the easing of collateral requirements. Delaying forced selling can spare investors immediate forced liquidation, but if stock prices fall further, the value of the collateral could drop below the outstanding loan balance, making it difficult for securities firms to recover their loans. Investors, too, could still owe money after selling all their shares.
Lee Nam-hyun, head of the Daishin Securities branch of the National Union of Office, Financial and Service Workers, pointed out, “I understand the government’s intention to stabilize the stock market by curbing forced selling, but it must clearly explain how the policy is designed to allocate the risk if stock prices fall further after collateral requirements are eased and large-scale credit losses occur.”
Lee also stressed, “The government must answer what safeguards are in place to protect securities firms’ independent risk management and workers’ working conditions.”
The controversy also raises the question of who will bear the cost of stabilizing the stock market. Curbing forced selling may ease short-term selling pressure, but if the downturn drags on, it may do no more than delay the realization of losses.
Voices in the securities industry are also emphasizing the importance of collateral management. The view is that a clear risk-sharing framework is needed to prevent the two goals of market stability and financial soundness from coming into conflict.
Ultimately, the assessment is that whether curbing forced selling leads to investor protection or merely postpones potential bad debts depends on the safeguards put in place against further declines.
One securities industry official added, “Forced selling is a burden for investors, but from a securities firm’s perspective, it is the last-resort risk-management tool for protecting loan receivables,” and, “If policy measures delay it, a framework for assigning responsibility in the event of further losses must also be put in place.”
[email protected] Kim Kyung-ah Reporter